UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ý Annual Report Pursuant to
Section 13 or 15(d) of the |
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or |
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o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to |
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Commission file number 1-9947 |
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TRC COMPANIES, INC. |
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(Exact name of registrant as specified in its charter) |
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Delaware |
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06-0853807 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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5 Waterside Crossing |
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Windsor, Connecticut |
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06095 |
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: (860) 298-9692 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Name of each exchange |
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Common Stock, $.10 par value |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o
The aggregate market value of the registrant’s common stock held by non-affiliates on September 9, 2004 was approximately $180,033,000.
On September 9, 2004, there were 13,898,147 shares of common stock of the registrant outstanding.
Documents incorporated by reference:
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held November 19, 2004 are incorporated by reference into Part III of this Report.
TRC Companies, Inc.
Index to Annual Report on Form 10-K
Fiscal Year Ended June 30, 2004
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Item 1. Business
TRC Companies, Inc. (the Company), incorporated in 1971, is a customer-focused company that creates and implements innovative solutions to the challenges facing America’s environmental, energy, infrastructure and security markets. The Company is a leading provider of technical, financial, risk management and construction services to industry and government customers across the country. Traditionally, the Company’s work was focused primarily on providing conventional technical services to commercial and government customers. In early 1998, new Company management initiated a growth plan focused on two key areas. First, while maintaining the traditional business, the Company embarked on a plan to increase growth in economically driven markets. Secondly, it would provide higher-value, “problem-solving” services and elevate purchasing decisions in customer organizations from middle to senior management. This approach has resulted in a superior growth rate and has allowed the Company to continuously transform its services to suit the evolving needs of its customers.
Requirements related to infrastructure (e.g., water, transportation), energy, and the environment are among the primary constraints to the nation's growth today and will remain so for the foreseeable future. While opportunities for the Company exist virtually everywhere in the country, in 2004 the Company refined its strategic plan to fully lever its strong market position by devoting the majority of its resources to geographic areas expected to provide the largest markets for its services. These include the high growth regions of California and Texas, and the adjacent states, and the corridor between Southern Connecticut and Philadelphia where population growth is modest, but transformation from industrial to commercial and residential uses is greatest.
The Company currently provides services in the following areas:
Environmental – The Company provides engineering, scientific and technical environmental services to customers through a national network of over 85 offices. These services have been one of the Company’s historic core strengths and serve as the foundation for the Company’s Exit Strategy® program.
Environmental services provided by the Company include pollution control, waste management, auditing and assessment, permitting and compliance, design and engineering, and natural and cultural resource management. The Company has particular expertise in air quality, emissions control and monitoring; in licensing new and expanded facilities; and in investigating and cleaning up environmentally impaired sites. While these services are generally required by the Company’s customers for compliance with federal, state and local environmental laws, the Company is experiencing an increase in its business due to: (1) the rehabilitation of older business processes to increase efficiency and productivity; (2) mergers, acquisitions and divestitures, and the identification, quantification and resolution of environmental liabilities associated with past practices; and (3) the redevelopment of former industrial properties to meet changing demographic patterns. The Company believes these economically motivated projects, as well as enforcement of environmental laws and regulations, will continue to provide opportunities to expand and grow its traditional environmental business. In addition, the Company has an information management group that assists its customers by analyzing their data management requirements and creating software and hardware solutions for cost-effective information management systems.
The Company has developed a unique, innovative method for its customers to outsource their environmental remediation activities to the Company. The Company’s Exit Strategy program provides its customers with a cost-effective alternative to managing their non-core environmental remediation activities. This is especially attractive to customers in the following situations:
• Mergers, Acquisitions and Divestitures - In typical transactions, neither buyer nor seller wishes to be responsible for existing environmental conditions of transferred assets. The Company solves this dilemma by identifying and quantifying the risk and then entering into a contract with both buyer and seller to complete the remediation.
• Discontinued Operations - When the Company’s customers close facilities or purchase redundant facilities as part of a business transaction, they are faced with the environmental legacy of the property. By outsourcing the management of these responsibilities to the Company, our customers can re-allocate resources to ongoing business operations.
• Multi-Party Superfund Sites - By law, the cleanup of abandoned, environmentally impaired sites is the responsibility of those businesses that sent waste materials to the site during its period of operation. The typically inefficient and lengthy process of negotiating and managing these cleanups drives up the legal and administrative cost burden for the responsible parties. By taking sole responsibility for the site, the Company eliminates the additional cost and expedites the schedule for cleanup.
• Brownfields Real Estate Development - The redevelopment of commercially viable but environmentally contaminated property is commonly referred to as “brownfields” redevelopment. The Company has, on occasion, purchased contaminated property from its customers and is in the process
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of cleaning up these properties to increase their market value for eventual sale or redevelopment. The Company does not actively pursue these sites on its own but generally seeks a real estate development partner with experience in the local or regional real estate market.
Regardless of the type of Exit Strategy project undertaken, the Company completes a thorough due diligence process to understand and quantify the environmental condition of the property. The Company then designs a specific risk management plan to address the known and unknown risks. This plan includes insurance to adequately protect the Company and its customers from future risks. The Company’s insurer on these projects is the American International Group (AIG).
Through its Exit Strategy program, the Company is recognized as a leader in the environmental remediation outsourcing market, and expects the market for these projects will continue to grow. The Company has an experienced team of technical and management personnel to continue to develop these opportunities.
Energy / Power – The Company has traditionally provided a variety of technical services to energy and electrical power customers from offices across the country. In 1998, the Company determined that changes in the energy industry would create substantial new demand for high quality, responsive services. Since that time the Company has established a leadership position in supporting the licensing of large electric generating facilities and re-powering older plants in areas of the country with the highest demand for additional power. In addition, the Company is providing a variety of technical services in support of large scale wind-powered electric generating projects and hydroelectric facilities.
The Company has substantially expanded its energy and power services to meet the growing demand and need for reliable energy. As discussed below, the Company has established a national capability for permitting, engineering and construction management services for the natural gas and electric transmission and distribution markets.
The proven long-term supply of natural gas is enabling industry to expand its use of this cleaner fuel source. This increased demand is in turn fostering expansion of the country’s gas pipeline transmission system. The Company has one of the leading practices supporting this infrastructure expansion. The Company is also assisting customers who are developing a new generation of liquid natural gas (LNG) facilities that will provide needed capacity to meet peak demand cycles.
As the 2003 blackouts in the upper midwest and northeast U.S. demonstrated, the electric transmission system serving the country has aged and is in need of upgrade. The federal government initiative to balance power supply and demand more effectively through the multi-state regional transmission organizations is also creating a need for permitting and engineering services to upgrade the transmission and distribution grid. The Company’s power delivery engineering and environmental groups are assisting the owners of the transmission grid with upgrading system capabilities to meet increases in demand, improve reliability, and integrate new sources of electric generation.
Recognizing that the needs of electrical users in high demand areas cannot be met solely by new major generating plants or capital upgrades to the transmission grid, the Company has also expanded its services into development and oversight of distributed generation projects and energy capacity management consulting. The Company is currently co-developing a number of distributed generation facilities located at host commercial office and manufacturing operations. In addition to maintaining a going-forward equity ownership position, the Company provides licensing, engineering and development management services for the facilities. This contribution of turnkey services is aimed toward solving special customer problems, allowing the Company to expand its ability to provide higher-value services.
The Company’s financial transaction management group is assisting customers interested in purchasing or selling energy assets. These transactions are becoming increasingly more frequent because of the benefits of having securitized assets and the need for capital in segments of the energy industry. The Company’s services for these transactions include identifying available assets for transfer as well as site-related due diligence and environmental services. These evolving activities continually allow the Company to increase the overall value of its services.
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Infrastructure – The Company’s infrastructure development markets are primarily targeted at: (1) the expanding need for capacity in geographic areas where the population is growing rapidly; and, (2) rehabilitative improvements of overburdened and deteriorating infrastructure systems. Investing in infrastructure projects continues to be a primary focus of government and industry due to these drivers. The Company’s infrastructure market focus areas include:
• Transportation - Planning, design and construction management of road and bridge projects for public customers.
• Land Development - Planning, design and construction management of development projects for municipal and private customers.
• Water/Wastewater Treatment - Planning, design and construction management for potable water and wastewater treatment facilities.
• Building Systems - Building automation systems design, central plant design, construction management and commissioning, and facility energy management program implementation.
• Security - Vulnerability assessment, engineering and structural improvements for public and private infrastructure facilities, and design and implementation of security and surveillance systems.
• Information Management - Technology strategy and planning, systems design and implementation for public and private sector customers.
Currently, much of the Company’s infrastructure work is accomplished through conventional contracting. There is an increasing trend for customers to prefer design/build or privatization (outsourcing) contracts, and the Company is pursuing value-added contracting approaches. The Company’s objective is to combine its technical, financial, and risk management capabilities as a suite of higher-margin, value-added services that enable the Company to capture larger projects with the potential for greater profitability.
At this time, it is not practicable to report revenue by the environmental, energy/power and infrastructure areas.
The Company’s customers include companies in the energy, chemical, automotive, petroleum, construction, transportation, mining, waste management and other industries, financial institutions, public utilities, and local, state and federal government agencies. Many of the Company’s commercial customers are major multinational corporations. The following are representative of the Company’s customers:
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AES Enterprises |
Hanson PLC |
Waste Management |
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ASARCO |
Kinder Morgan |
Williams Kern River |
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BNSF |
Lockheed Martin |
State Departments of Transportation |
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BP/Amoco |
New York City |
• California |
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Cisco Systems |
• School Construction Authority |
• New Jersey |
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City of Frisco, Texas |
• Department of Parks |
• New York |
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Connecticut Resources Recovery Authority |
• Department of Transportation |
• Pennsylvania |
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Consolidated Edison |
Orange County, CA |
• South Carolina |
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Conoco Phillips |
Pfizer |
• Virginia |
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Constellation Energy |
PG & E |
• West Virginia |
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Duke Energy |
Sempra Energy |
• Texas |
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El Paso Energy |
Sentex |
U.S. Government |
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Entergy |
Shea Homes |
• EPA |
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Exxon/Mobil |
Sun Oil |
• DOD |
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General Electric |
The Irvine Company |
• FAA |
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General Motors |
The Trump Organization |
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Unocal |
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For fiscal 2004, 2003 and 2002, agencies of the U.S. Government (principally the U.S. Environmental Protection Agency and the U.S. Department of Defense) accounted for 5%, 6% and 5%, respectively, of the Company’s net service revenue. No customer represented 10% or more of the Company’s net service revenue in any of those years.
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The Company believes that it attracts customers primarily on the basis of its reputation for providing value-added and cost-effective solutions to customer needs and its ability to respond to meet customer schedules. The marketing activities for the Company’s services are generally conducted by senior professional staff members and executives (seller-doers) who are recognized experts in our business areas and regularly meet with existing and potential customers to obtain new business. These activities are typically conducted through the Company’s network of regional resource centers for local customers and by market program leaders for national customers. In addition, corporate and subsidiary marketing departments coordinate representation at trade shows, prepare sales literature and develop and place advertising.
During the past three years a key element of the Company’s marketing and sales activities has been to focus on the highest level managers and decision makers (e.g. CEOs, CFOs) of our customers. This approach has been successful in allowing the Company to demonstrate its special value-added services to buyers who are prepared to pay higher margins on larger projects when the Company can assist them in accomplishing their most important objectives. This approach will be a continuing and expanding strategy to assist the Company in achieving greater growth and higher margins.
At June 30, 2004, the Company’s net contract backlog (excluding the estimated costs of pass-through charges) was approximately $250 million, as compared to approximately $240 million at June 30, 2003. The Company expects that approximately 60% of this backlog will be completed in fiscal 2005. In addition to this net contract backlog, the Company holds open order contracts from various customers and government agencies. As work under these contracts is authorized and funded, the Company includes this portion in its net contract backlog. While most contracts contain cancellation provisions, the Company is unaware of any material work included in backlog which will be canceled or delayed.
As of June 30, 2004, the Company had approximately 2,400 full- and part-time employees. Approximately 85% of these employees are engaged in performing environmental, power and infrastructure engineering and consulting, financial, risk management, construction management and information management services for customers. Many of these employees have master’s degrees or their equivalent and a number have Ph.D. degrees. The Company’s professional staff includes program managers, professional engineers and scientists, construction specialists, computer programmers, systems analysts, attorneys and others with degrees and experience that enable the Company to provide a diverse range of services. The balance of the Company’s employees are engaged in executive, administrative and support activities. None of the Company’s employees are represented by a union. The Company considers its relations with its employees to be very good.
The markets for many of the Company’s services are highly competitive. There are numerous professional architectural, engineering and consulting firms and other organizations which offer many of the services offered by the Company. The Company is subject to direct competition with respect to the services it provides from many other firms, ranging from small local firms to large national firms having substantially greater financial, management and marketing resources than the Company. Competitive factors include reputation, performance, price, geographic location and availability of technically skilled personnel.
However, the majority of the Company’s work represents repeat orders from long-term customers because the Company focuses on market areas where it can be a leading provider due to staff skills, reputation, financial strength and/or geographic presence. For example, the Company believes that it is one of the top two or three providers of licensing services for large energy projects. Further, the Company believes that it is the market leader in providing complete outsourcing of site remediation services through its Exit Strategy program. In general, competition is reduced when the Company can provide value-added, high-level problem-solving services to senior management incorporating a combination of technical, risk management and financial support services.
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The Company has contracts with agencies of the U.S. Government and various state agencies which are subject to examination and renegotiation. The Company believes that adjustments resulting from such examination or renegotiation proceedings, if any, will not have a material impact on the Company’s operating results, financial position or cash flows.
The Company’s businesses are subject to various rules and regulations at the federal, state and local government levels. The Company believes that it is in compliance with these rules and regulations. The Company has the appropriate licenses to bid and perform work in the locations in which it operates. The Company has not experienced any significant limitations on its business as a result of regulatory, bonding or insurance requirements. The Company does not believe any changes in law or changes in industry practice would limit bidding on future projects.
Patents, Trademarks and Licenses
The Company has a number of trademarks, service marks, copyrights and licenses, none of which are considered material to the Company’s business as a whole.
Environmental and Other Considerations
The Company does not believe that its compliance with federal, state and local laws and regulations relating to the protection of the environment will have any material effect on capital expenditures, earnings or competitive position.
Item 2. Properties
The Company provides its services through a network of over 85 offices located nationwide. The Company leases approximately 680,000 square feet of office and commercial space to support these operations. In addition, a subsidiary of the Company owns a 26,000 square foot office/warehouse building in Austin, Texas. These properties are adequately maintained and are suitable and adequate for the business activities conducted therein. In connection with the performance of certain Exit Strategy projects, affiliates of the Company have taken title to sites on which those activities are being performed.
Item 3. Legal Proceedings
The Company and its subsidiaries are subject to claims and lawsuits typical of those filed against engineering and consulting companies. The Company carries liability insurance, including professional liability insurance, against such claims subject to certain deductibles and policy limits. Management is of the opinion that the resolution of these claims and lawsuits (including the ones described immediately below) will not have a material adverse effect on the Company’s operating results, financial position or cash flows.
A subsidiary of the Company has been named as a defendant, along with a number of other companies, in litigation in New Jersey Superior Court brought on behalf of individuals claiming damages for alleged injuries related to a collapse of several floors of a parking garage under construction in Atlantic City, New Jersey. The litigation is in early stages of discovery. The Company’s subsidiary had a limited inspection role in connection with the construction, and management believes that it has meritorious defenses and is adequately insured and that this matter will not have a material adverse effect on the Company’s operating results, financial position or cash flows.
A purported predecessor of a subsidiary of the Company has been named as one of over 50 defendants in a case filed in New York Supreme Court alleging personal injuries to one individual related to potential historical exposure to asbestos. To date there has been minimal discovery in this case, and the Company has no reason to believe it has any exposure.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s common stock is traded on the New York Stock Exchange under the symbol “TRR”. The following table sets forth the high and low per share prices for the common stock for the fiscal years ended June 30, 2004 and 2003 as reported on the New York Stock Exchange:
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Fiscal 2004 |
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Fiscal 2003 |
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High |
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Low |
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High |
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Low |
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First Quarter |
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19.90 |
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$ |
14.46 |
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$ |
21.35 |
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$ |
12.90 |
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Second Quarter |
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22.09 |
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16.17 |
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17.93 |
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9.60 |
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Third Quarter |
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23.33 |
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17.26 |
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15.10 |
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12.49 |
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Fourth Quarter |
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19.78 |
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15.09 |
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15.87 |
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10.60 |
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On September 9, 2004, there were approximately 3,500 holders of the Company’s common stock, of which 289 were shareholders of record.
To date the Company has not paid any cash dividends on its common stock. The payment of dividends in the future will be subject to the financial condition, capital requirements and earnings of the Company. However, future earnings are expected to be used for expansion of the Company’s operations, and cash dividends are not currently anticipated.
Equity Compensation Plan Information
The following table provides information as of June 30, 2004 for compensation plans under which equity securities of the Company are authorized for issuance:
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Number of securities to be |
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